Ensuring Greater Predictability
As OEMs enter 2020, many seek to mitigate the effects of uncertainty around international tariffs, an uneven global economy, and national elections. Moreover, they face a significant increase in regulatory reporting requirements globally this year. Most notable among these is the European Union’s new Medical Device Regulation (MDR). Scheduled to go live in May, the MDR’s purpose is to increase patient safety by making products more readily traceable.
The combined demands on OEMs, in turn, are increasing pressure on MPOs to support their customers’ businesses by demonstrating compliance expertise; offering skilled, certified experts; and improving logistics, supply chain, and quality services.
Demonstrate compliance expertise—As businesses in a highly regulated industry, OEMs have dedicated resources for internally staying atop of governmental and industry compliance reporting requirements. But those resources generally do not extend to handling their contract manufacturers’ reporting. So, OEMs are highly motivated to work with those MPOs who demonstrate compliance expertise and are ahead of schedule in meeting regulatory demands. A case in point is the MDR, which brings a series of requirements that all OEMs conducting business in EU countries will need to meet by May. With the MDR, MPOs have an ideal scenario to deliver excellent value through their compliance expertise to the OEMs who are their customers.
Offer skilled, certified experts—Acute labor shortages continue to be commonplace for many OEMs, impeding their ability to take on new accounts. MPOs are selling the benefit of alleviating these labor shortages with a skilled team, often combining this with examples of their unique expertise. For example, one MPO has certified technicians who can be assigned within a week to meet secured medical device production forecasts, which would take six months for an OEM to complete on its own.
Improve logistics, supply chain, and quality services—In speaking with OEMs, it’s common to hear they’re not just interested in which MPO is going to provide the lowest labor costs. Among OEMs who outsource some production workloads, some 80 percent have reported to me that MPOs most need to improve in the areas of track-and-trace, supply chain integration and visibility, and quality data on every production run. These OEMs emphasize quality data is invaluable in improving work instructions and production workflows, which leads to higher yields.
Take the Lead on Quality and Compliance
Instead of simply following OEM requirements, MPOs have an opportunity to grow their businesses in 2020 by taking the helm in expanding their compliance and quality management initiatives, particularly as they relate to logistics. Seven metrics form the foundation of an agile framework MPOs can use to enable solid, reliable, and consistent reporting of compliance, quality, and yield rates, which can result in increased efficiency while lowering costs.
1. Corrective Action/Preventative Action (CAPA)—Also known as corrective action requests, CAPAs are used for eliminating anomalies and non-conformances in products often discovered during inspections. MPOs should proactively provide CAPA-level data on the production runs for their OEM customers’ products to offer an accurate view of product quality over the long-term.
2. Engineering Change Order Tracking—Also known as an engineering change notice, this metric tracks changes to routing, bills of materials, production workflows, and change requests within an MPO’s production center. This metric matters because it enables MPOs to provide customers with insights into how well their products are being managed and coordinated.
3. Perfect Order Performance—This metric provides an immediate measure of how well synchronized and integrated the workflows are between an MPO and its medical device manufacturing customers. Each step of order capture, order management, production, and fulfillment are used to define this metric, which is often represented by an index value.
4. Return Material Authorizations (RMAs) and Returns—RMAs are a direct measure of product quality and a product’s nonconformance to customer specifications and requirements. They are issued for a variety of reasons, and it’s essential for MPOs to have a monthly Pareto Analysis done of the top 20 percent of factors that drive 80 percent of the returns. This will make troubleshooting more efficient, leading to permanent solutions to problems that may be causing RMAs to begin with. This, in turn, will help MPOs gain greater cost and operational efficiencies while maximizing brand customer satisfaction and loyalty.
5. Manufacturing Cycle Time (Aggregate)—This metric quantifies the amount of elapsed time from when an order is taken until the product is produced and entered into finished goods inventory. Cycle times vary by manufacturing segment, the scale of factory operations, global locations, and relative stability of supply chains supporting operations. MPOs who implement real-time integration, apply Six Sigma to identify and understand process bottlenecks, and re-engineer factory systems to be more customer-focused can significantly improve their manufacturing cycle times.
6. Production Yield Rates—Yield rates reflect how efficient a machine or process is in transforming raw materials into finished products. It’s one of the critical measures of production yield as it reflects how well-orchestrated the entire MPO operation is. MPOs and the medical device brands they serve need to continually monitor yield rates to determine how they are progressing against plans and goals. Real-time integration, greater supply chain quality and compliance, and improved quality monitoring systems all have a positive impact on yield rates.
7. Inbound Supplier Quality Levels—OEMs measure the inbound quality of their suppliers. Similarly, MPOs need to measure the dimensions of how effectively their parts and raw materials suppliers are at meeting a high level of quality and on-time delivery. This is accomplished by using statistical sampling and, increasingly, chemical analysis of advanced materials. Inbound quality levels often vary from one shipment to the next, so MPOs should produce statistical process control charts that will quantify and show the trends of quality levels over time.
Applying an Agile Framework for Quality
The key to succeeding in any MPO partnership is defining the initial cost targets with a clear understanding that quality levels, yield rates, and on-time delivery performance will never be sacrificed for a lower price. Quality, efficiency, customer delivery dates, and supply chain performance are not negotiable.
When initiating an MPO partnership, it’s important to think in terms of a framework. Staying agile is essential for any partnership to work; inflexibility will make any outsourcing partnership too structured to the point of driving it to failure.
MPOs and the OEMs they support need to see the partnership as a progression that begins with clearly defined baseline target cost and pricing goals. However, it can’t stop there. When costs and pricing dominate MPO partnerships, there’s a higher chance they will fail because there isn’t enough time to focus on what matters most—achieving a higher percentage of perfect order manufacturing performance, reducing cycle times, improving on-time delivery percentages, and above all, increasing the quality levels.
MPOs that concentrate on the three following strategies will be well positioned to maintain a consistently high product quality level while offering a competitive price.
Serve as an extension of the OEM. MPOs should position their facilities as just one more shop floor producing parts or products for the OEM. Conversely, the most successful and profitable partnerships will be those where OEMs treat MPOs as another production facility rather than a supplier. Supporting visibility and accountability across shop floors to ensure consistent product quality measures is central to establishing and maintaining this relationship. MPOs should be prepared to report back on yield rates, machine stability, and efficiency. Additionally, if the OEM relies on overall equipment effectiveness (OEE), it may be necessary to provide regular updates on how the machines being used for contract production are performing on that metric.
Focus on value, not costs alone. Partnerships between OEMs and MPOs will quickly become transactional and stay there if the focus is purely on cost. Instead, both entities need to share information in real time, including quality metrics, compliance reporting, track-and-traceability data, and real-time monitoring data if needed for a given product or process. This will lay the foundation for redefining the relationship progressively beyond price to a true partnership.
Collaborate in real time. The best-managed partnerships between OEMs and MPOs are those in which their respective operations are well orchestrated. The key to making this strategy work is using a real-time dashboard of quality management and compliance metrics. Included in this dashboard are machine utilization levels, scrap rates, cycle times, reject codes, down hours, and OEE performance down to the workcenter level.
In 2020, competing for an OEM’s business and loyalty will require MPOs to offer more than affordable labor; they also need to meet production demands at the highest quality levels possible. Increasingly, this means becoming a strategic partner in applying the metrics to track and report on compliance, quality, and yield performance to more effectively collaborate in meeting rapidly evolving market demands.
Those MPOs who put the processes and systems in place to address the seven quality metrics outlined within this article will be well positioned to excel in winning the business and loyalty of their manufacturing customers in the medical products market. Additionally, by adopting the three key strategies of an agile framework for product quality, MPOs can begin to establish the long-standing partnerships with OEMs that will result in mutual growth and success in 2020 and beyond.
Louis Columbus is currently serving as principal at IQMS. Previous positions include director product management at Ingram Cloud; vice president marketing at iBASEt, Plex Systems; senior analyst at AMR Research (now Gartner); and marketing and business development at SaaS startups. Columbus’ academic background includes an MBA from Pepperdine University and the Strategic Marketing Management and Digital Marketing Programs at Stanford University Graduate School of Business. He also teaches MBA courses in international business, global competitive strategies, international market research, strategic planning, and market research. Columbus currently is a member of the faculty at Webster University and has taught at California State University, Fullerton; University of California, Irvine; and Marymount University.